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Westpac Institutional Bank Morning Report

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Fuseworks Media
Fuseworks Media
Westpac Institutional Bank Morning Report

Commodities, treasury yields, and US equities traded firmly after the US data surprises - service industries posted their highest survey reading since August 2005 and the +8.2% mom jump in pending home sales is the second highest since 2000.

Friday's solid payrolls report was also taken into account at the first post-Easter session, and the S&P500 is currently up 0.7%.

Energy companies led the advances, oil futures breaking 2.1% higher to $86.90, last seen in October 2008. Copper (1.3%) similarly broke higher, while gold (+0.7%) remained range-bound.

Other notable breakouts occurred in US treasuries, the 10yr note at 4.01 (+5bp) at October 2008 levels. The Fed's routine meeting yesterday to review the discount rate did not result in an increase, as some had speculated.

The US dollar behaved as a pro-growth instrument and is slightly higher than its pre-Easter 80.90 level at 81.10. Of interest was the response to Friday's solid payrolls report - a quick 0.6% gain. A small bounce also occurred after yesterday's data.

EUR has remained within a 1.3460 to 1.3590 range since last Thursday. GBP moved higher to 1.5320 on an improved Conservative showing in the polls reducing the risk of a hung Parliament. USD/JPY broke above 94.00 on Friday to 94.80, but pulled back yesterday to 94.30.

AUD has consolidated its break above 92.00, ranging to 20 pips higher.

NZD has lost ground to a lower 0.7020-0.7050 range. AUD/NZD made a fresh high at 1.3116 before settling just under 1.3100.

US non-farm payrolls rose 162k in March, and back revisions added a 62k jobs to January-February. March included 48k Census 2010 workers, so ex Census but including those back revisions the level of payrolls employment is 176k higher than reported previously.

That is not as strong as Westpac's 230k ex Census forecast but still a decent outcome. Indeed with revisions, private sector payrolls have now posted gains in four of the five months between November and March.

But remember there is still some sort of weather bounce in the March report (construction, for example, went from -59k to +15k) and the economy grew at a 6% annualised pace in Q4. With the weather normalising and economic growth slowing employment growth should moderate in the months ahead, excluding the million plus temporary Census workers still to hit the figures in Q2.

US ISM manufacturing jumps from 56.5 to 59.6 in March, its highest since mid 2004. Production, new orders, inventories and exports were all stronger, but jobs grew at a slightly slower pace. Also, the ISM non-factory index rose 2.4pts to 55.4 in March, the highest reading since May 2006.

The components were even more encouraging, with activity rising from 54.8 to 60.0 and new orders surging from 55.0 to 62.3. The only weak spot was that the employment measure (at 49.8) hasn't yet moved into growth territory, but Friday's payrolls report showed plenty of service sector jobs being created. 14 out of 17 sectors reported growth in March, compared to nine in February.

US initial jobless claims fell 6k to 439k last week, and in the prior week, continuing claims fell by the same number to 4662k. Both results show a modest degree of improvement in US labour market conditions in the period after the survey week for the March non-farm payrolls report.

Less favourably, corporate layoff announcements totalled 67k in March, lower than a year earlier but the second highest monthly result in seven months.

US construction spending fell 1.3% in Feb, for a cumulative loss of 8.3% over the latest four months. Both residential and non-res spending posted declines in feb.

US pending home sales rose 8.2% in February, reversing a similar-sized plunge in January. This may be the first sign that the extension of the homebuyer's tax credit has reinvigorated the market, but more likely it reflects the end of the weather disruptions (sales rose in all regions except the West, where the weather was mild in January).

Other data in brief from the last few days. UK factory PMI rises from 56.5 to 57.2 in March. Also the Euroland factory PMIs revised up from 56.3 to 56.5, compared to 54.2 in feb. German retail sales volumes fall 0.4% in Feb after a 0.5% decline in Jan.

Outlook

AUD/USD and NZD/USD outlook next 24 hours: There's major event risk from the RBA meeting today. A 25bp hike should propel the AUD past 0.9220 and possibly 0.9250. NZD looks soggy but should be supported at 0.7000. The quarterly survey of business opinion today also poses event risk.

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